Blockchain Technology is Raising the Bar in Giving
It’s not just about cryptocurrency: smart contracts are making philanthropy more sophisticated and encouraging non-profit impact measurement
Applications of blockchain technology¹ are set to be revolutionary for the non-profit sector. Blockchain is already affecting how services and projects are implemented and managed and how donations are being received and distributed. Faster distribution of funds to aid recipients, greater financial inclusion and the ability to bypass points vulnerable to corruption are just a few of the ways it’s currently being used.
With the rise in crypto millionaires, younger generations’ interest and investment and developing legal definitions, people now want to donate their cryptocurrency (the most famous case so far being the Pineapple Fund). As apps have been created to support crypto giving, non-profit adoption of crypto donations has opened up a new source of funding.
With this, a batch of companies and organizations have also created third-party donation websites, where non-profits can list their projects and have them funded. They’ve popped up as a philanthropic alternative primarily as response to concerns about transparency and trust and scandals in non-profits which have damaged donor confidence.
Cryptocurrency philanthropy offers non-profits a secure, direct and cheaper way to receive funding. But blockchain-based philanthropy isn’t just about cryptocurrency. Blockchain technology also offers a more sophisticated approach to ensuring a donation supports actual impact. Donors interested in utilizing this space need to look at the bigger picture potential of blockchain technology.
The benefit of cryptocurrency is that its transactions can be tracked transparently and immutably along a public blockchain ledger: this allows individual donations to be viewed along paths to their final destinations. For donors, they can watch their donation move to a non-profit and then perhaps to receiving organization, to a company for the purchase of a product or to an individual beneficiary.
The premise to these sites is similar to fundraising campaigns which first became popular over 10 years ago, where donors “buy” a goat or a tent or school fees. With these campaigns, the items are just representative; but with cryptocurrency donations, the expectation is that the donor will actually see the receipt for and a picture of the actual goat.
However, to examine higher-level impact, we need to move beyond the idea of providing a goat. In the non-profit sector, good planning for a project means thinking about the path to an intended impact (this is a logic model or parts of a theory of change). So, perhaps the impact desired is increased employment for youth, then one line may look like this towards the goal:
- laptops are purchased for classes (input)
- classes for youth are held (activity)
- number of youth that have taken classes (output)
- youth have increased skills (short-term outcome)
- youth have higher employment rates (long-term outcome or impact)
For now, cryptocurrency donations work well for the input step when used for procuring certain items or given directly to a person (a beneficiary) to where it can be traced. This is why it’s effective for straightforward transactions like buying supplies for humanitarian or emergency aid or when it’s sent directly to beneficiaries for things like paying for utilities or medical costs. This kind of giving could one day be in direct competition to sites like GoFundMe.
But to make the jump to support greater short-term and long-term outcomes, this where the smart contract comes in. A smart contract is a program that sits in a blockchain which sets out a transaction that happens only when certain conditions are met. When used for philanthropy intelligently, the requirements set out in smart contracts try to help solve the general lack of transparency of impact data in the non-profit sector by requesting proof of inputs, activities, outputs and even outcomes.
The smart contract process incentivizes impact measurement beyond inputs, because non-profits will typically receive tranches of funding only when results and reports are shared. In most cases, funds are held back until details of milestones or project completion are uploaded and are then verified by either a group of donors themselves, a third-party company or fee-based independent auditors or public bodies.
There are a few companies that are trying to innovate beyond input tracking within the blockchain. In the case of the platforms Alice and Proof of Impact, they are able to manage proof through use of smart contracts and tokens, which are used to represent different kinds of assets on a blockchain and, in this case, represent impact assets or facts. Donations can be made in cryptocurrency or fiat currency, so they’re open to everyone.
Both platforms can be used for traditional modes of philanthropy or impact investment for those who are seeking financial returns. Other possibilities through these platforms are the ability to create impact portfolios, capabilities for comparative, benchmarking and collaboration between non-profits, the crowdsourcing of expert evaluations and blockchain-based identity management for beneficiaries.
It will be interesting to see how this type of impact-focused blockchain philanthropy scales up over the next few years. Smart contract-based donation agreements open up new opportunities, including through the sharing of granular project data beyond feel-good beneficiary stories and how they could offer a means of funding for non-profits that want to try untested or more experimental projects which traditional funders and institutions may be more reluctant to support, particularly as risk can taken on by impact investors.
These third-party companies will also need to ensure they work in favour of harmonizing impact measurement data, instead of creating another layer of reporting requirements. There will need to be ways to include advocacy projects, which is less attributable and works with outputs like meetings and information sharing and outcomes around policy and behaviour changes. Donors will need to be reminded that non-profits also need support for overhead costs, impact measurement training and quality staff in order to maintain their work.
Non-profits need to look inward at their culture and practices and do better to openly and clearly communicate the impact of their work to donors and the public. Blockchain-based philanthropy is a useful tool in this push for transparency, but donors will need to ensure they also aim to support greater impact goals if they want to know that their money is being effective. While blockchain is still in its infancy in adoption, the technology and its applications on philanthropy are exciting and transformational.
Thank you Anne Connelly for providing me with very helpful feedback on my thoughts on blockchain philanthropy.
¹Blockchain is a decentralized digital record-keeping system of transactions which are added to ledgers in ‘blocks’. Blockchain does not equal bitcoin: bitcoin is just one of many cryptocurrencies that are implementations of blockchain technology, typically used as an incentive to be part of a public blockchain, although not all blockchains have associated cryptocurrencies. Blockchain doesn’t have a standard definition, although an ISO committee is trying to work it out.
Further reading:
Nonprofits explore the newest fundraising frontier: Cryptocurrency (Devex)
Giving Thought: Bitcoin and Blockchain Technology (Charities Aid Foundation)
Tokenising Social & Climate Impact with Kevin Pettit from Proof of Impact (Blockchain Won’t Save the World podcast)
Connie Gallippi on cryptophilanthropy and blockchain (Giving Thought podcast)
Can cryptocurrency become the UN money of the future? (Quartz)
